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Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

The financial crisis of 2007-2008 has seen an unprecedented monetary policy response across the world to prevent what was feared could be a depression. The U.S Federal Reserve (Fed), Bank of England (BoE), Bank of Japan (BoJ), and the European Central Bank (ECB) slashed interest rates to zero or close to zero, engaged in quantitative easing by purchasing government bonds to increase money supply, and BoJ and ECB have now deployed negative interest rates to spur investment, growth and inflation. As a consequence, the reserves held by banks at their central banks have ballooned into trillions of dollars, yen and euros without those funds circulating in their economies and in the global economy as real investment.

Global growth is continuing to slow and commodity prices are at their bottom especially because China is executing a structural transformation of its economy from one of real investment and exports to consumption and services. India, despite strong growth, is taking further measures to ensure that monetary policy easing is indeed transmitted to the economy to raise real investment to create jobs and more growth.

Such extraordinary monetary expansion not achieving the desired goals of growth and inflation in the global economy is leading central bankers to conclude that monetary policy alone cannot be expected to achieve those goals and that fiscal and structural policies are necessary. But the question of why such a monetary expansion has proved to be ineffective begs to be examined.

Many of the G20 countries, with the exception of a few such as Germany, are exercising caution in deploying expansionary fiscal policy to produce growth. Many of them already have high debt-to-GDP ratios and are being, therefore, careful to borrow more. Structural reforms such as setting and meeting fiscal targets; trade liberalization, that is, lifting restrictions on imports and exports; removing price controls and state subsidies; encouraging more investment (for example, by encouraging foreign direct investment, FDI, and foreign institutional investment, FII, flows); and improving governance and fighting corruption are being put into place to create a favorable climate for real investment. But these take time. So, it is necessary to think out of the box about the fiscal and monetary policy mix that is necessary to attain the goals of restoring growth and producing inflation.

Growth to get out of the Great Depression came because of government public works and World War II, not because of monetary policy. However, nothing precludes monetary policy from supporting fiscal incentives to provide targeted money supply to increase real investment in specific sectors and industries in an economy. China has achieved historic growth rates doing precisely that: the People’s Bank of China (PBOC) supplied money for initiatives targeted by government planners. Monetary, fiscal and structural policies in China have executed industrial policy.

There has been an outright rejection of monetary policy executing industrial policy in the United States and in the Group of Seven countries (G7) in general because doing so goes against the grain of the economic orthodoxy of free market capitalism. Banks have been bailed out during the 2007-2008 financial crisis with the central banks engaging in industrial policy in the financial sector but it has been left to the financial markets to figure out where and when in the real sector to invest and how much (the U.S government had to bail out General Motors using tax payer money and not the Fed despite the Federal Reserve Act allowing it to do so). The result is poor monetary policy transmission. The monetary expansion instead is being used by corporations to raise money in the markets through the issuance of corporate bonds, raise venture capital for start-ups based on outlandish evaluations, for appreciating stock values, and by using stock buybacks with declining revenues and earnings (profits) to boost stock prices. Stock prices are ceasing to be truly reflective of corporate performance. In this scenario it is doubtful when the global economy will fully recover to healthy growth.

It is time to dispense with economic orthodoxy and let monetary policy do industrial policy around the world by supporting prudent fiscal and structural policies.

Financial repression rules. Expunging debt has only two possible mechanisms. Inflation or repudiation. If they don't get inflation underway then repudiation will kick in. In the boom real rates were too high and wealth flowed from borrowers to savers. Now the process needs to reverse to rebalance.

Worrying!
How can you think that printing little pieces of paper and calling them money can fix real economy's issues?
And we are moving towards a society entirely controlled by the state based on expediency arguments: "Desperate times call for desperate measures."

On the first issue, I think that's what money is: a paper that is trusted to be liquid. If the state accepts it for taxes, this creates markets, competing for it, making it liquid. You may think that the "real economy" can work on credit, with no need for money behind it --just private debt. This would mean countries and law will become redundant and increasingly more people will be sold into slavery, to pay off debts. This is not going to happen. There will not be markets in vacuum.

On the second issue, I agree with your concern, to the extend that central banks are not public, in many countries and, thus, the proceeds of money creation by a central bank are not going to the public. Otherwise, there is nothing stopping credit-based markets to work outside the over-regulated, centrally controlled system, as you perceive it.

I have two points.
When did we accept this much intervention in the market from the political class who really don't know what they are doing/ using policies that were not even in text books 10 years ago to avoid a 'normal' but larger recession that we have experienced since 1600 or before! Why isn't this the argument?

Inflation at 2% - I really don't understand why policy makers are fighting the markets natural tendency to deflate. There is no relationship between QE and inflation (look at the graph in FT). This whole experiment could fundamentally undermine the system that our society is build upon. It worries me as I can't make investment decisions upon fundamentals, but rather what the government plans/ likely to do.
Just because they have been poor at managing there fiscal house, it shouldn't fundamentally destroy the market to put it in there favour.

I really hope that intervention stops and we can have a natural market rebalancing. If it causes a recession - so be it, atleast it will purge the inefficiencies from the system... 8 years late...

Firstly, it is because ...we had (even before the crisis) a canary in the mine. Its name is Japan. Japan is for 25 years in the same situation the rest of the advanced economies are now. Secondly, the result of your market deleveraging has been tried in the 1930's and caused a global depression, which was overcome only by WWII.

Now, if you still prefer your "market deleveraging" and the fallacy that without intervention you would knowing how to make everyday choices, think again. There will be no money around to make these decisions with. You will end up with a single choice: default. Meantime, 50% of the population will be unemployed and emigrating around, so that you can test your "market deleveraging" and stop of intervention!

Why do you think next to nothing has happened in nearly a decade in terms of reform and why has so much money been indirectly fed to the banks to buffer the capital reserve ratio

Why was private bank debt transferred to the taxpayer openendly in the EU. Why was Greece hung out to dry when the solution forced thru in unsustainable and almost certainly does not meet the IMFs criteria

Note Deutsche banks derivatives portfolio is suggested as being 20x Germanys GDP. Anybody want to catch that if it wobbles

I do not know, but the next time over --which is not far-- there will be no reason to bailout the banks instead of nationalizing their solvent part (after they break). That is with the exception of the EU, which has decided bail-ins; but we will see if this really goes through for the EU...

The thing is, debt is moved around in advanced economies and they cannot get rid of it. The next crisis will come sooner than later and will be time for decisions.

@ Steve Hurst
"Why should the private sector let go of the money machine?"
Have you read Dr. Bill White’s (BIS Monetary Economic Director, OECD Development Director) interview at the Cobden Center or his Paper for the Group of 30?
The jig is up on debt. The money systems are insolvent.
There is ALREADY way more debt than can be paid.
Just a question of whether we let them take us all down with their unseaworthy ship of debt.

"Why do you think next to nothing has happened in nearly a decade in terms of reform and why has so much money been indirectly fed to the banks to buffer the capital reserve ratio"
Because the central banks are out of debt-based ammo, and think that QE is better than doing the nothing that it amounts to. Fail. (See White).

"Why was private bank debt transferred to the taxpayer open-endedly in the EU. Why was Greece hung out to dry when the solution forced thru in unsustainable and almost certainly does not meet the IMFs criteria?"

EU and Greece are outside the parameters of fixing their money system – all the EMU’s out there have given up their autonomy over their money systems. A bigger fail even than debt-based money.
They’ve become second-tier sovereigns.
For the Money System Common.
Thanks.

Roubini's line that "Desperate times call for desperate measures" reminds one of justifications for all kinds of measures on the grounds that the situation is exceptional. Desperate for whom, one may ask? In whose name...

The impact of a "helicopter drop" will be less than hoped for, because ordinary Americans will spend their helicopter money on goods made in China. They have little choice, as China now manufactures practically everything.

There is a clear relationship between the west's economic problems and China's currency manipulation. Moreover, moving American factories to China has made America's rich capitalists richer, while making working-class Americans poorer, by causing unemployment and underemployment.

The ever-widening disparity in wealth and income is now causing a political backlash. We know who is to blame: Over and over, US politicians have betrayed ordinary Americans in favor of whichever firms are rich enough to lobby.

What has been accomplished by accommodating China? Ask yourself that question as you read this MIT article from 1994:

I think you are right, up to a point, about helicopter money going to imported goods will only have a temporary inflation effect. But, helicopter money can come in a form that requires that you can use it to pay off any debts you have, or it can be given to governments for investment or tax-reductions. These alternatives will reduce the debt overhang and will make helicopter money much better that QE.

As far as China's currency manipulation is concerned, I do not agree at all. US can close its economy, if it chooses to. It is your choice not to and it is the Chinese choice to keep their exchange rate low. In fact, QE had partly exactly that effect for the dollar (reduced exchange rate). It is not your choice what Renminbi's exchange rate will be, especially when China has such a vast population to lift out of poverty --not to preserve its minimal middle class.

The problem of inequality and wealth-to-income of the US economy is entirely domestic (and exported to the rest of the world via "free" market treaties). You better do something to solve it in your elections!

A quantity of purchasing power - whether from a helicopter or a debt-contract - is a quantity of purchasing power.
That people purchase goods from China - because they think they MUST - makes no difference to the source of the money (be it public or private).
A heli-drop is better just because Friedman was right, no debt to repay and no interest to come FOREVER from future economies.
Heli drops work. That's the point.
What people do with their spending is irrelevant to, and not determined by, its source.

good point on China. The real question is who or what is the ultimate repository of the helicopter money? It is the very companies in existence already. They are not going to invest in more productive capacity because they will realize that the boost in spending will prove temporary. The demand side of the curve moves up. supply remains the same, ergo, inflation.

As though it's a catstrophe if the economy is not growing. Was life OK in 1980, when per capita GDP was much lower? How about 2000? Also not bad.

Why the endless calls about crisis? These are not desperate times. These are low growth times, and we should think carefully about the allocations that will result from the policies, and their long-term effects.

I have no idea what this article is banging on about, which is clearly written for economic and business experts. No wonder financial markets and global economics ultimately don't work; you talk in language nobody from outside your field can understand. This makes everything about as transparent as mud and as intractable as the mathematics of black holes. And I'm a physicist. We're supposed to be able to make sense of stuff!

Money is an engineered world, not a physical world, so that you can expect to make sense without studying a bit. Macroeconomics are not so difficult, at a high level; it's just that Roubini throws in some low-level stuff, just because that's the way economists understand the world. I didn't get those either; I am a computer scientist.

For macroeconomics, I suggest this: https://youtu.be/ZhrY_coLK_k?t=9m29s as a starting point. For me, it was 95%+ clear, with minimal unnecessary economic terms, without explanation. After that, you will now what this discussion, which Roubini tries to sum-up, is all about.

Sorry, but, what a waste of words.
I don't think anyone reading the Maestro's column missed the advent of QE, the manifestation of NZIRP and now NIRP.
By the time Roubini gets to debt-free money options, he is in a mocking mode of policy options - and offers little explanation of the benefits and costs to the various means of so doing.
Importantly, Dr. Roubini ignores the fact THAT issuing the nation's money is a "governmental" function. This fact should color the 'monetary finance' and other 'heli-drop' options as 'fiscal-monetary' and not necessarily CB operations.
To clarify, what is NEEDed is reform to the money system, not a mere switch to CB base-money injections.
So, Doctor, what about the Martin Wolf suggestion to END fractional reserve banking and end the ability of the private sector to be our money issuers?
For the Money System Common.

What is this obsession with helicoptors and alphabet soup.
Einsteins definition of madness was to keep doing the same thing again and again and expect a different result. Youre all as mad as a box of frogs. Central banks cannot solve this on their lonesome

Its a political problem. p o l i t i ca l,
lack of policy, p o l i c y

(Afraid this may be out of sync due to the 'reply' format)
Steve,
OK, so I asked for any better suggestions for a solution, and got a lot more stuff about the EU – sorry if you’re a national from an EMU country. Join in and bend over. There is no fix without a substantive restructuring of the Union.

Heli-drops seem illegal from my view of their contracts and agreements, but undoubtedly, the standard “shortage of money and saturation of debt” perfectly fits that imperfect union.

Steve, we haven't tried yet the Helicopter money. We have done the version of helicopter money to the financial system to help save the banks, but we still haven't seen a version that makes money available to the public.

Junckers, pres of the EU said during the Greek crisis 'We know what to do but dont know how to get elected afterwards'

The Greek crisis is due to pop up again shortly, not least with the IMF not wanting to play ball

The Eurozone cannot function without wealth transfer to poorer regions which currently those holding wealth will not do. The Euro has to fail or continually pile debt on the South. The main beneficary of the Eurozone is Germany which gets a lower currency than otherwise and is stockpiling cash while it can

The demography of Europe bar the odd exception (UK due to migration) is aging. This gives a a tax revenue and spend problem

This is compounded by youth unemployment ranging typically from 12 % to 20% to 30% to above 50% in the South. This will lead to depopulation

Older people do not consume products they do require welfae and health provision

One has to factor in a host of variables which have varying degrees of impact on world economy. China's economic downturn & its handling by the policymakers in Beijing would be the single most important variable. China's declared intention of raising its profile through upgradation of renminbi would have a bearing on dollar's primacy. This may not impact in the short term, though. The formation of AIIB & presumably the designated vehicle for financing the ambitious OBOR would raise concerns about the future role & efficacy of the Bretton Woods institutions IMF/WB. The second variable would the future of EU as a homogeneous entity post June 23r, the date of UK referendum. If Brexit happens, EU's future remains unclear & with it its relevance, influence & importance. Third variable would be the new US President. If Trump trumps the polls, a turmoil in world markets is inevitable with unknown consequences. Add to these, comparatively minor variables like terrorist upsurge, oil prices & natural calamities due to climate change.
Hence unconventional unconventional policies of central banks might get further complicated.

First, the recent Hike in interest rates proved that Zero interest rates had nothing to do with monetary policy, but were caused be the generalized risk aversion or liquidity preference.

So the QE was a reaction to the ZLB, and has we have seen the impact on medium term rates is low, since the recent hike did nothing to prevent the flattening of yelds.

"Unfortunately, the political economy of most structural reforms – with their front-loaded costs and back-loaded benefits – implies that they occur only slowly."

Roubini couldn't be wronger... Structural reforms in the structure of the economy, not the idiotic discussion about wages and productivity, implies investment in our infra-structure, education, health, security, etc which have immediate impact on the economy.

@ Jose araujo
"Debt levels are a symptom of excess deposits"
"Whats the difference between equity and debt?"

Your answers are here: https://youtu.be/1BP0RyY1h8w?t=2m50s
(tuned to the point, but I suggest the whole presentation as the best of Adair Turner, on the core of the subject of money creation and what is just one side of it, credit creation)

The 1st (Hayek) and 3rd (Fisher-Simons) argument categories, are essential to the answer to your two quoted phrases above. (The 2nd argument category --Minsky-- refers to the way credit created the GFC.)

The crucial problem with your 2nd quoted phrase is reached here: https://www.youtube.com/watch?v=XoHs7vCdl3E
These are the differences of debt and equity. In fact, the differences are exactly the reasons we "need debt" and debt fuels investment that otherwise would not have occurred.

There is the case of EU-level public investment to stimulate the economy, as you argue. But, there are two problems. First, using the EIB rules out the possibility of monetary financing such investment, because of the nature of EIB: it is a bank and, thus, creates money via debt and has no other way to do it; this leads to risks --or inadequate limiting principles-- of over-investment and/or of increase of already excessive debt overhang. Second, any other type of EU-level public investment, requires political evolution of the EU and proposals to address the same risks; if not anything else, EU politicians of strong countries will not risk such proposals, for off-border EU policy.

(Again, probably out of time)
Jose,
To say that Debt is an artificial problem …. caused by monetary expansion …… is actually to agree with me.
There is no need to have debt expand when money expands, only when credit expands.

"What’s the difference between equity and debt?"
Here is an example of an equity-based public money system, something the world has not seen in 300+ years.
https://www.govtrack.us/congress/bills/112/hr2990/text

"...reforms in the structure of the economy, ....., implies investment in our infra-structure, education, health, security, etc which have immediate impact on the economy.
Agreed, BUT, funded how?
Set up new development banks - but funded how?
More debt?
What we need is to have money without debt.
End fractional-reserve banking.
Public money and not public debt.
Friedman's "Monetary and Fiscal Framework for Economic Stability"
Fisher's "100 Percent Money"
Turner's "Permanent Overt Money Finance"
Kucinich-AMI's The NEED Act.
Let's get some public-funded options on the table, and stop pretending this is a 'financial' problem.

With a decade going by and seemingly another decade to go with no end in sight maybe the unthinkable unconventional might be in order. With banks hoarding and thwarting every move maybe it is time we do what we should have done in hindsight – throw the banks to the wolves...

Time to reload the Rothschildian matrix? Substitute helicopter money with Central Bank-backed IOUs for private debt jubilees and the global Ponzi swindle may begin to unravel..
Forgive 1bn and get XX basis points off your your NIRP for your next 2bn :)

See also:

In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats.

Sooner or later, Trump's core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.

A Saudi prince has been revealed to be the buyer of Leonardo da Vinci's "Salvator Mundi," for which he spent $450.3 million. Had he given the money to the poor, as the subject of the painting instructed another rich man, he could have restored eyesight to nine million people, or enabled 13 million families to grow 50% more food.

While many people believe that technological progress and job destruction are accelerating dramatically, there is no evidence of either trend. In reality, total factor productivity, the best summary measure of the pace of technical change, has been stagnating since 2005 in the US and across the advanced-country world.

The Bollywood film Padmavati has inspired heated debate, hysterical threats of violence, and a ban in four states governed by the ruling Bharatiya Janata Party – all before its release. The tolerance that once accompanied India’s remarkable diversity is wearing thin these days.

The Hungarian government has released the results of its "national consultation" on what it calls the "Soros Plan" to flood the country with Muslim migrants and refugees. But no such plan exists, only a taxpayer-funded propaganda campaign to help a corrupt administration deflect attention from its failure to fulfill Hungarians’ aspirations.

French President Emmanuel Macron wants European leaders to appoint a eurozone finance minister as a way to ensure the single currency's long-term viability. But would it work, and, more fundamentally, is it necessary?

The US decision to recognize Jerusalem as the capital of Israel comes in defiance of overwhelming global opposition. The message is clear: the Trump administration is determined to dictate the Israeli version of peace with the Palestinians, rather than to mediate an equitable agreement between the two sides.